Tax on rental income UK

firsttime1979

Can anyone help me with the following situation regarding paying tax on rental income.

I am a UK higher rate tax payer currently in permanent employment paying tax through PAYE.

I have earned additional income from letting out my old flat since 2008. The income earned has been less than the thresholds for HMRC self assesment (less than 10k gross and less than 2.5k net) Only this new tax year will it be projected to be greater than 2.5k net so I understand I will need to register for self assesment for this year onwards. Intend in doing this soon.

My question is around the following scenario

For the tax years up until end of the 2010/2011 I was able to reduce down my taxable income to zero through the utilisation of expenses and using up previous year rental losses (incurred when i was paying higher mortgae interest). Only for 2011/2012 do I calculate that I have a tax liability to pay I beleive I have to pay this before January 2013 but tell them before October 2012.

If I havent actually submitted any of this to HMRC bearing in mind that everything up until this projected tax year has been under the self assesment thresholds then how do I

1. Pay the tax that is due for 2011/2012 ( its about 550 approx)

and

2. In your opinion (and I know its not advice) have I actually done anything wrong by not submitting any of this information given that there has been no tax avoided?

Any pointers or experiences shared would be very welcome

thanks in advance

sequence

I can't answer your questions on the losses, but the threshold applies to all income, not just self employed income. So your PAYE work will have used up your allowance. You have to fill out a self assessment every year, regardless of profit and loss.

Lovelyjoolz

firsttime1979 wrote: »

2. In your opinion (and I know its not advice) have I actually done anything wrong by not submitting any of this information given that there has been no tax avoided?

Yes, you have done this wrong. You should have registered for Self Assessment as soon as you became a landlord for the first time. As sequence posted earlier, your PAYE income will have used up all your allowance and you should have been submitting a tax return year on year, regardless of whether or not you made a profit. HMRC are not going to be happy!

You really need to get yourself an accountant to get you out of this mess. And sooner rather than later, because if HMRC decide to impose fines, they can backdate the interest all the way back to 2008.

This is not opinion. It is fact.

Werdnal

When you say there has been no profit in previous years, how are you calculating your rental income versus outgoings? Only certain expenses are allowed against you total rent received to offset your tax. A common mistake is for LLs to assume that as they are covering their mortgage payments with their rent, they have no profit. ONLY mortgage interest is an allowable expense, so if you are taking the whole mortgage payment out of your "profit" and not just the interest, you may indeed have made a profit in previous years.

Also, it is great to plough back money into the property to keep it up to scratch, but only maintenance and repairs are an allowable expense, not improvements - ie you can replace a broken/rotten window, but fitting UPVC double glazing throughout is an improvement, and therefore not allowed!

You need to come clean to HMRC, and quickly. They do improse fines for late submissions, and don't take kindly to people claiming ignorance! You have set yourself up in business as a LL (yes even only 1 property is classed as a business) and you should have registered for self-assessment as soon as you started letting.

If you are already paying tax on your earnings, the additional rental income is taken as an addition to your total income, and therefore I fear you will have some tax to pay!.

Read this for more info: http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_4017814

Also, with your obvious lack of knowledge on the tax implications of becoming a LL, you may be wise reading this:

http://forums.moneysavingexpert.com/showpost.php?p=41160642&postcount=12

to make sure you are observing all the other rules, regs and legal requirements of letting.

armour

I had this problem a while back. You need an accountant to present all your missing tax returns. It will be expensive but the acc will charge his/her fee for each tax return in the relevent year so reducing your tax bill (maximising your loss) in subsequent years.
This is very handy because HMRC can fine you double the tax due plus interest.
My advice would be to gather together all the info relating to the letting (bank statements, tenancy agreements, bills for work done during tenancy etc) prior to seeing an accountant.
Good luck!

runninglea

armour wrote: »

I had this problem a while back. You need an accountant to present all your missing tax returns. It will be expensive but the acc will charge his/her fee for each tax return in the relevent year so reducing your tax bill (maximising your loss) in subsequent years.
This is very handy because HMRC can fine you double the tax due plus interest.
My advice would be to gather together all the info relating to the letting (bank statements, tenancy agreements, bills for work done during tenancy etc) prior to seeing an accountant.
Good luck!

How far can they go back? Is it the 6 years or when the house was first let?

00ec25

sequence wrote: »

the threshold applies to all income, So your PAYE work will have used up your allowance. You have to fill out a self assessment every year, regardless of profit and loss.

rubbish. try reading it again
http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/SelfAssessmentYourTaxReturn/IntroductiontoSelfAssessment/DG_4017116

Lovelyjoolz wrote: »

You should have registered for Self Assessment as soon as you became a landlord for the first time.
This is not opinion. It is fact.

that is an error not fact. the rules for SA registration are set out in the link, being a LL with property income (not total income) >10K and/or 2.5k threshold is the trigger for SA but merely being a LL is not a trigger for SA, however, as with receipt of any form of untaxed income, you are required to inform HMRC of that fact - this is not the same as going into SA

Werdnal wrote: »

You have set yourself up in business as a LL (yes even only 1 property is classed as a business) and you should have registered for self-assessment as soon as you started letting.

not so - he should have notified them of his rental income but there is no requirement to register for SA just because he became a LL

I am surprised at the errors in some of the above posts, as the OP well knows they did NOT have to register for SA given that their stated figures are below the mandatory registration thresholds as shown in the OP

HOWEVER, to answer Q2, yes you have done something wrong, . You are required to notify HMRC that you have gross rental income as soon as you start to receive it. This can be by letter if you are below the stated SA thresholds but you must inform them nonetheless and HMRC will then expect you to send an annual statement showing your net profit (or loss) so that they have a record of this on which to base their adjustment of your tax code so as to collect the tax due. If you do not do this then you may face penalties for failing to disclose and will incur interest on any tax that was due but unpaid. As you claim to have made losses to date then interest is not an issue but they will not be pleased that you have not told them before.

to answer Q1 - you write a letter to the tax office that deals with your PAYE and enclose your net profit figure stating that this is from rental income. Ask for it to be collected thru your tax code (only allowed where tax due <2,500)
Note - if you do not want to pay via tax code adjustment then that forces you on to the SA register as they will require a SA return if you want to pay by cash lump sum (not paying tax due via tax code is one of the other triggers for going into SA)

Thrugelmir

runninglea wrote: »

How far can they go back? Is it the 6 years or when the house was first let?

First let. There's no statute of limitations .

chewmylegoff

As an accountant, my advice would be to ring hmrc and explain the situation and ask them what they want you to do. Unless you don't know how to fill in a tax return and are unsure about which expenses are tax deductible, paying an accountant is just going to make this more expensive.

If there is no tax due from previous years it's likely that the fine won't be that big. I know someone who was in exactly this situation with no actual tax liability who only got fined a couple of hundred quid for late filing of the relevant tax returns.